Exam 17: Corporations: Introduction and Operating Rules

Carrot Corporation, a C corporation, has a net short-term capital gain of $65,000 and a net long-term capital loss of $250,000 during 2014. Carrot Corporation had taxable income from other sources of $720,000. Prior years' transactions included the following: 2010 Net long-term capital gain \ 150,000 2011 Net short-term capital gain 60,000 2012 Net short-term capital gain 45,000 2013 Net long-term capital gain 35,000 Compute the amount of Carrot's capital loss carryover to 2015. a. $0. b. $32,000. c. $45,000. d. $185,000. e. None of the above.

Which of the following statements is incorrect regarding the dividends received deduction?

The corporate marginal income tax rates range from 15% to 39%, while the individual marginal income tax rates range from 10% to 39.6%.

A corporation must file a Federal income tax return even if it has no taxable income for the year.

A taxpayer is considering the formation of a business that would derive some amounts of tax-exempt interest, qualified dividends, and capital gains. Explain how these income categories would be reported and taxed under the various types of entity forms discussed in the chapter. Consider the tax implications both to the entities and to their owners.

Bjorn owns a 60% interest in an S corporation that earned $150,000 in 2013. He also owns 60% of the stock in a C corporation that earned $150,000 during the year. The S corporation distributed $30,000 to Bjorn and the C corporation paid dividends of $30,000 to Bjorn. How much income must Bjorn report from these businesses?

Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in 2013. Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the year. The corporation distributed $45,000 to Juanita, and the partnership distributed $45,000 to Carlos. Which of the following statements relating to 2013 is incorrect?

Warbler Corporation, an accrual method regular corporation, was formed and began operations on March 1, 2014. The following expenses were incurred during its first year of operations (March 1 - December 31, 2014): Expenses of temporary directors and organizational meetings $25,000 Incorporation fee paid to state 2,000 Expenses incurred in printing and selling stock certificates 10,000 Accounting services incident to organization 12,000 a. Assuming a valid election under § 248 to amortize organizational expenditures, what is the amount of Warbler's deduction for 2014? b. Same as a., except that Warbler also incurred in 2014 legal fees of $15,000 for the drafting of the corporate charter and bylaws. What is the amount of Warbler's 2014 deduction for organizational expenditures?

Adrian is the president and sole shareholder of Pigeon Corporation. He also lends money and rents a building to the corporation. Discuss how these business relationships between Adrian and Pigeon Corporation can help avoid double taxation. What limitations are there on the use of such relationships?

Gerald, a cash basis taxpayer, owns 70% of the stock of Black Corporation, a calendar year, accrual basis C corporation. On December 31, 2013, Black accrued a bonus of $80,000 to Gerald, and paid the bonus to Gerald on January 3, 2014. When does Gerald report the bonus, and when does Black Corporation deduct the bonus? Would your answers change if Gerald was a 40% shareholder of Black?

Rachel is the sole member of an LLC, and Jordan is the sole shareholder of a C corporation. Both businesses were started in the current year, and each business has a long-term capital gain of $10,000 for the year. Neither business made any distributions during the year. With respect to this information, which of the following statements is correct?

Because of the taxable income limitation, no dividends received deduction is allowed if a corporation has an NOL for the current taxable year.

Ostrich, a C corporation, has a net short-term capital gain of $20,000 and a net long-term capital loss of $90,000 during 2014. Ostrich also has taxable income from other sources of $1 million. Prior years' transactions included the following: 2010 net short-term capital gains \2 0,000 2011 net long-term capital gains 15,000 2012 net short-term capital gains 25,000 2013 net long-term capital gains 5,000 a. How are the capital gains and losses treated on Ostrich's 2014 tax return? b. Determine the amount of the 2014 net capital loss that is carried back to each of the previous years. c. Compute the amount of capital loss carryover, if any, and indicate the years to which the loss may be carried. d. If Ostrich were a proprietorship, how would Ellen, the owner, report these transactions on her 2014 tax return?

Income that is included in net income per books but not included in taxable income is a subtraction item on Schedule M-1.

Don, the sole shareholder of Pastel Corporation (a C corporation), has the corporation pay him a salary of $600,000 in the current year. The Tax Court has held that $200,000 represents unreasonable compensation. Don must report a salary of $400,000 and a dividend of $200,000 on his individual tax return.

Jake, the sole shareholder of Peach Corporation, a C corporation, has the corporation pay him $100,000. For tax purposes, Jake would prefer to have the payment treated as dividend instead of salary.

Compare the basic tax and nontax factors of doing business as a partnership, an S corporation, and a C corporation. Circle the correct answers.

Lucinda is a 60% shareholder in Rhea Corporation, a calendar year S corporation. During the year, Rhea Corporation had gross income of $550,000 and operating expenses of $380,000. In addition, the corporation sold land that had been held for investment purposes for a short-term capital gain of $30,000. During the year, Rhea Corporation distributed $50,000 to Lucinda. With respect to this information, which of the following statements is correct?

Ivory Corporation, a calendar year, accrual method C corporation, has two cash method, calendar year shareholders who are unrelated to each other. Craig owns 35% of the stock, and Oscar owns the remaining 65%. During 2014, Ivory paid a salary of $100,000 to each shareholder. On December 31, 2014, Ivory accrued a bonus of $25,000 to each shareholder. Assuming that the bonuses are paid to the shareholders on February 3, 2015, compute Ivory Corporation's 2014 deduction for the above amounts.

In the current year, Crimson, Inc., a calendar C corporation, has income from operations of $180,000 and operating deductions of $225,000. Crimson also had $30,000 of dividends from a 15% stock ownership in a domestic corporation. Which of the following statements is correct with respect to Crimson for the current year?